Inventory Financing
Unlock Capital from Your Stock
Get a revolving line of credit or term loan at 40–80% advance rates by securing the goods your business already owns.
How It Works
How Inventory Financing Works
Four steps from inventory appraisal to a revolving credit line that moves with your business.
Inventory Appraisal
The lender assesses your eligible inventory using cost, market, or net orderly liquidation value to establish your borrowing base.
Credit Line Established
A revolving line is set at 40–80% of eligible inventory value. Your borrowing base certificate defines the maximum you can draw.
Draw Funds as Needed
Pull from the line to purchase new stock, cover operations, or fund a seasonal build-up — draw what you need, when you need it.
Repay as Inventory Sells
As stock sells and revenue comes in, you pay down the line. Available credit replenishes automatically for your next purchasing cycle.
Compare Options
Inventory Financing vs. Other Options
How inventory-backed lending compares to A/R financing, PO financing, and unsecured lines of credit.
| Feature | Inventory Financing | A/R Financing | PO Financing | Line of Credit |
|---|---|---|---|---|
| Collateral | Inventory you own | Outstanding invoices | Supplier costs (future) | None (unsecured) |
| Advance Rate | 40–80% of value | 70–95% of invoices | 70–100% of costs | Up to credit limit |
| Structure | Revolving line | Revolving line | Per-transaction | Revolving line |
| Scales With Revenue | Yes — with stock levels | Yes — with A/R balance | No — per PO | Fixed limit |
| Qualification | Inventory quality | Customer credit | Customer PO + credit | Your credit score |
| Reporting Required | Monthly/weekly BBC | Monthly/weekly BBC | Per transaction | Light / annual |
| Customer Notification | No | Sometimes (factoring) | Yes (supplier notified) | No |
| Typical Cost (APR) | 8–25% | 15–35% | 18–45% | 8–20% |
| Best For | Stock-heavy businesses | B2B slow payers | Large confirmed orders | General working capital |
Structures
Types of Inventory Financing
Different structures depending on your business model, inventory type, and how you sell.
Inventory Line of Credit
A revolving line secured by eligible inventory. Draw and repay as needed — your available credit adjusts with your borrowing base. The most common inventory financing structure.
Best for: Businesses with consistent inventory turnover and ongoing working capital needs.
Inventory Term Loan
A fixed-amount loan secured by inventory with scheduled repayments. Less flexible than a line, but appropriate for specific one-time inventory investments or seasonal build-ups.
Best for: Seasonal businesses or those making a strategic, one-time large inventory purchase.
Floor Plan Financing
Specialized financing for high-value individual units — vehicles, equipment, furniture, appliances. The lender pays the manufacturer or distributor directly; you repay as each unit sells.
Best for: Dealers selling high-ticket items: automobiles, boats, RVs, heavy equipment, or major appliances.
Weigh Your Options
Benefits & Considerations
Understanding both sides helps you decide if inventory financing fits your working capital strategy.
Benefits
- Unlocks working capital tied up in stock without selling equity
- Revolving structure replenishes as inventory sells — continuous access
- Scales automatically as inventory balance grows with your business
- Qualification based on inventory quality and turnover, not just credit score
- Ideal for seasonal build-ups — borrow pre-season, repay at peak
- Can combine with A/R financing for full working capital coverage
Considerations
- Higher cost than traditional bank loans or SBA financing
- Monthly or weekly borrowing base certificate reporting required
- Advance rates lower for slow-moving, perishable, or obsolete goods
- Periodic field exams and physical inventory audits by lender
- Borrowing base deficiency risk if inventory drops in value
- May require minimum inventory levels to maintain the facility
- Field exam fees ($1,000–$5,000+ per exam) add to the total cost of financing
Real-World Example
Seasonal Retailer — Holiday Stock-Up
$200K inventory need · $50K available cash
Without Inventory Financing
- • Can only purchase $50K in inventory
- • Undersupplied during peak season
- • Stockouts lose sales to competitors
- • Growth constrained by cash on hand
With Inventory Financing
- • $150K inventory LOC at 75% advance
- • Full $200K inventory purchased
- • Captures peak season sales fully
- • Repays line as holiday stock sells
| Item | Amount |
|---|---|
| Inventory Purchased | $200,000 |
| Holiday Season Revenue | $300,000 |
| Gross Profit (33% margin) | $100,000 |
| Financing Cost (8% APR / 3 months) | −$3,000 |
| Net Profit After Financing | $97,000 |
The $3,000 financing cost enables $97,000 in net profit — vs. ~$16,500 if limited to $50K in stock. ROI on the financing cost: over 3,000%.
Who It Serves
Industry Applications
Inventory financing solves working capital challenges across product-based industries.
Retail
Stock up for peak seasons or expand product lines without depleting cash reserves. Ideal for holiday, back-to-school, or promotional inventory cycles.
Manufacturing
Purchase raw materials in bulk and maintain component stock for production runs — even when customer payments lag behind production schedules.
Wholesale Distribution
Maintain sufficient stock to fulfill orders promptly, support just-in-time delivery, and take advantage of bulk supplier pricing.
Seasonal Businesses
Build inventory before peak periods without exhausting cash, then repay the line as products sell through the season.
Ready to Get Started?
See How Much Your Inventory Is Worth
Get a free estimate based on your inventory type, turnover, and value.
FAQ
Frequently Asked Questions
Everything you need to know about inventory financing.
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Ready to Unlock Your Inventory's Value?
Get a personalized inventory financing quote and see how much working capital is sitting in your warehouse.